Unallocated Strategy

[rjimlad]

I have just dipped my toe into unallocated at Goldstackers. Storage is now a problem for me and I will hang on to my apocalypse stash. I am looking for different strategies in managing unallocated holdings. I will use my account as a savings account each week and as I am in a position to monitor the spot price all day long, will buy both gold and silver as the spot becomes favourable. Does anyone have strategies for unallocated to get gradual growth? Or is it a case of just treating it like a savings account. I have looked into GSR tactics but it looks like the ratio will stay in the 70's for a long time.

 

[Monsta]

Generally I see unallocated as a way to 'save in metal' during the lowest points of the SP, especially outside business or trading hours when you can no longer trade with some dealers or other outlets like the Perth Mint. So your strategy is similar to my main idea of unallocated.

Where I differ from you is that I buy unallocated with the expectation that I will be converting it to a physical delivery 'soon'. I usually like to build up a reasonable amount - usually a kilo in terms of Silver - and then take delivery and pay the difference.

You could also use it as a 'trading account' where you try and buy & sell at anytime against the changes in SP without the issue of being storage constrained.

Otherwise, I suggest an proper allocated account. At the moment my allocated account offers silver a ounce price cheaper than most dealer unallocated programs. You can also buy and sell directly out of that account too.

 

[tolly_67]

I have allocated with ABC Bullion.....they are cheaper than Goldstackers. At the moment it is by about $12 for a 1kg bar.

 

[tolly_67]

But the spread is only $30....so Goldstackers wins....

 

[goldpelican]

Yes, Gold Stackers buys back unallocated at spot - several dealers advertise lower prices over spot, but it is the spread that ultimately matters. Our spreads for unallocated reflect our business model in that it is being fully backed by retail physical products that have a wholesale cost to bring into stock - it would be a cashflow negative product to sell if we had to subsidise the premiums on the stock backing unallocated for the duration that they were being held. So it would be possible to create an unallocated product that is sold "at spot" and redeemed below spot, but then someone has to cough up the capital for the premiums on the physical metal that's required to back the product - if we sold an unallocated ounce of silver for $20, but it costs us $23 to bring an ounce of physical silver into stock to back it... there's a shortfall. So we have a premium over spot of $2/oz on silver, $2/g on gold & platinum, and $30/kg on silver, and $30/oz on gold and platinum.

I like to think that Gold Stackers really popularised easy access for unallocated accounts for retail customers in Australia in recent years - when we started offering it few other dealers did. Some even had "unallocated is evil!" type warnings on their websites, but then mysteriously took these warnings down and replaced them with their own unallocated offerings I probably need to look around again and see who's undercut our spreads, but we have a solid product and many many satisfied customers that just know it works, it's liquid, and it's easy. If you redeem for physical (as our product was really originally intended to be used), then the spreads are moot, as they become a full credit towards your physical redemption in future. We don't use CFDs etc to back the offering which would allow us to offer tighter spreads, it's all backed by physical metal, and in retail sizes too - not piles of illiquid 1000oz bars.

Swapping between unallocated products following a GSR strategy has been popular for a number of our clients. Another way I have seen it used is for personal hedging when turning items in the stack over - a few people will sell items on Silver Stackers or eBay as personal sales, then "back to back" the sale with unallocated at Gold Stackers to retain their overall position in metal - say you wanted to "cash out" some premium, but not reduce your stack - each time you sell a high premium item at a profit, you book the same amount of metal in unallocated (or more if you wanted to reinvest the premium profits as additional metal). Later on you either redeem the unallocated for new products or cash as needed, or hold it as unallocated longer term.

 

[Bit Baron]

Mr Gold Pelican,

Is unallocated holdings independently audited and if so than how often is the audit conducted and are reports of the audit made available to holders of unallocated metals?

 

[Jim4silver]

Mr Gold Pelican,

Is unallocated holdings independently audited and if so than how often is the audit conducted and are reports of the audit made available to holders of unallocated metals?

I don't know the costs, etc, for unallocated gold, but it seems to me it would be cheaper to just play GLD. That is, if you are only wanting to "flip" based on the movement of gold and don't have any desire to hold the actual metal in your hands.

Using cheap stock brokers you are looking at $7 or so commissions on each side, so $14 total buy to sell. You can buy a $hit ton of shares for that commission price.

PS I am not advocating playing GLD per se since I am prefer to hold my metals, just offering the suggestion.

Just my opinion.

Jim

 

[silversearcher]

Mr Gold Pelican,

Is unallocated holdings independently audited and if so than how often is the audit conducted and are reports of the audit made available to holders of unallocated metals?

I think GP has answered some interesting questions on unallocated pool. Great way for those to build ounces by selling higher premium bullion on Ebay and dumping it into a unallocated pool. And backing physical silver or gold with unallocated holdings is unique approach that offers some guarantee. As for your question, I would hope there is a independent audit ? Particularly in uncertain times like now. If investors get a whiff that bullion keeps plummeting and decided to do a run on the dealers and just cash out their holdings there may be a liquidity issue ? Personally, I like try some unallocated holdings and Goldstackers is the best on the spread. The system they have sounds fair for them and for the customer. As like GP said there is a percentage above spot unallocated metals to cover the wholesale cost of physical metals, and that's fair else they would lose money. I think unallocated pools would be good in a world of normal inflation and where bullion keeps up with inflation. But at the moment with the all smoke and mirrors in the markets I'm not too sure.

 

[rjimlad]

Agreed. It took me a lot of thought to hit the button on the unallocated but I have a good stack of physical in case of emergency and if I trust GS that it's all backed then unallocated makes sense to me since I live in a house the size of a midget submarine and although it's heavily fortified, my capacity for on-site bullion warehousing is very small. I'm still trying to get my head around how to really use unallocated to increase holdings by going in and out. Even with the low premiums, I think you need bigger and quicker fluctuations in the silver spot to make an in-out-in strategy work. Same with GSR. I modelled it all on a spreadsheet but you need a significant holding and rapid movements in the GSR to get a tactical benefit from this. I don't have the former and can't see the latter happening. I guess the best practice is to make a weekly or monthly buy and just treat it as a savings account.

 

[goldpelican]

Mr Gold Pelican,

Is unallocated holdings independently audited and if so than how often is the audit conducted and are reports of the audit made available to holders of unallocated metals?

We don't engage an independent auditing firm at this time - our business simply isn't at a scale where it's cost effective to do so, nor is it a legal requirement as it is not an investment product in the eyes of ASIC. It's not a program that has hundreds of tons or many thousand of customers accrued over decades of trading. What we do have however is an independent professional forensic accountant with many years of precious metals accounting experience, and it falls under their scrutiny throughout the year, and even more so at end of year. I can't sneak a $10 stationary purchase past them without a receipt, God help me if we didn't have our unallocated backed.

Unallocated purchases are backed the day a customer makes their purchase as part of our normal trade hedging requirements, and metal holdings are regularly internally audited against customer holdings. It's the only way to operate - we don't run long or short positions, we are in the business of making markup on premiums, not in the business of speculating on spot prices.

Unallocated is a small part of our business, liquidity is not an issue. Unallocated transactions are almost background noise against our physical trade.

For what it's worth, we also have our reputation which I would put up against any dealer in the world as amongst the most reputable, ethical and honest companies in the bullion space, with a track record of hundreds of satisfied customers who trust us. We're not just a website - there's real people running the business and anyone who comes into office can meet and greet to form their own opinion. It's called due diligence, and I recommend it to anyone considering dealing with an independent bullion dealer.

Anyone who ever saw my car at a Melbourne stacker meeting knew what a POS I drove while living in Melbourne - it's bullion dealers driving really flash cars you need to ask questions about

 

[Bit Baron]

Mr Gold Pelican,

Your detailed response is greatly appreciated.

Driving an older car means that you can stack more ounces, which is a good way to look at it.